British MEP urges VAT move to halt carousel fraud

A British MEP will try this week to break a prolonged EU deadlock over fighting VAT fraud with a radical proposal to levy the tax on all trade among the 27 countries.

VAT fraud is said by the European commission to cost exchequers €40bn (£31bn) a year but other estimates say the real cost could be as high as €100bn.

In the most serious form of fraud criminal gangs contrive a series of bogus transactions involving goods imported VAT-free from within the EU, claiming back the tax without ever paying it. But the EU-27 have failed to agree on measures to combat carousel or missing trader fraud. Last month finance ministers refused to back a pilot project that would allow Austria to apply the "reverse charge" mechanism - simply levying VAT at the final stage of the supply chain - across the board.

Sharon Bowles, Liberal Democrat MEP and rapporteur for the parliament's economic and monetary affairs committee, is proposing to levy VAT of 15% on all EU trade on goods and services.

"The point will come when there's no alternative as the losses caused by fraud will continue to mount," she said. "The losses are already equivalent to several pence on income tax."

Bowles proposes that EU countries set up clearing houses for passing on relevant VAT levies. But this would mean much freer exchanges of information - and trust - among EU member states.

"Would France track down 15% VAT if it belonged to the UK?" she asked. "We hope we can build that trust through cooperation. If we don't exchange information we won't get anywhere and other forms of cross-border fraud will develop, particularly in internet-based services."